Question 1

Bond A and Bond B have identical characteristics except that Bond A has a higher interest rate. Which bond has a higher credit risk?

Accepted Answer

The answer of Bond A and Bond B have identical...

Question 2

National saving is equal to Y - T - C.

Accepted Answer

A) True 
 B)False

Question 3

The country of Growpaw does not trade with any other country. Its GDP is $20 billion. Its government purchases $3 billion worth of goods and services each year, collects $4 billion in taxes, and provides $2 billion in transfer payments to households. Private saving in Growpaw is $4 billion. What is investment in Growpaw?

Accepted Answer

A)  $5 billion 
B)  $4 billion 
C)  $3 billion 
D)  $11 billion 
A)  $5 billion 
B)  $4 billion 
C)  $3 billion 
D)  $11 billion

Question 4

If the inflation rate is 2 percent and the real interest rate is 7 percent, then the nominal interest rate is

Accepted Answer

A)  3.5 percent. 
B)  5 percent. 
C)  9 percent 
D)  7 percent. 
A)  3.5 percent. 
B)  5 percent. 
C)  9 percent 
D)  7 percent.

Question 5

A decrease in the budget deficit

Accepted Answer

A)  makes investment spending fall. 
B)  makes investment spending rise. 
C)  does not affect investment spending. 
D)  may increase, decrease, or not affect investment spending if private saving doesn't change. 
A)  makes investment spending fall. 
B)  makes investment spending rise. 
C)  does not affect investment spending. 
D)  may increase, decrease, or not affect investment spending if private saving doesn't change.

Question 6

People who buy newly issued stock in a corporation such as Crate and Barrel provide

Accepted Answer

A)  debt finance and so become part owners of Crate and Barrel. 
B)  debt finance and so become creditors of Crate and Barrel. 
C)  equity finance and so become part owners of Crate and Barrel. 
D)  equity finance and so become creditors of Crate and Barrel. 
A)  debt finance and so become part owners of Crate and Barrel. 
B)  debt finance and so become creditors of Crate and Barrel. 
C)  equity finance and so become part owners of Crate and Barrel. 
D)  equity finance and so become creditors of Crate and Barrel.

Question 7

If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded,

Accepted Answer

A)  there is a surplus and the interest rate is above the equilibrium level. 
B)  there is a surplus and the interest rate is below the equilibrium level. 
C)  there is a shortage and the interest rate is above the equilibrium level. 
D)  there is a shortage and the interest rate is below the equilibrium level. 
A)  there is a surplus and the interest rate is above the equilibrium level. 
B)  there is a surplus and the interest rate is below the equilibrium level. 
C)  there is a shortage and the interest rate is above the equilibrium level. 
D)  there is a shortage and the interest rate is below the equilibrium level.

Question 8

Fortunade Corporation stock has a price of $100 per share, a dividend of $1.60 per share, and retained earnings of $2.00 per share. The dividend yield on this stock is

Accepted Answer

A)  2.8 percent. 
B)  2.0 percent. 
C)  1.6 percent. 
D)  0.4 percent. 
A)  2.8 percent. 
B)  2.0 percent. 
C)  1.6 percent. 
D)  0.4 percent.

Question 9

Scenario 26-2. Assume the following information for an imaginary, closed economy.
GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion.
-Refer to Scenario 26-2. For this economy, national saving is equal to

Accepted Answer

A)  $1.1 trillion. 
B)  $2.9 trillion. 
C)  $1.2 trillion. 
D)  $1.7 trillion. 
A)  $1.1 trillion. 
B)  $2.9 trillion. 
C)  $1.2 trillion. 
D)  $1.7 trillion.

Question 10

If the nominal interest rate is 7 percent and the rate of inflation is 3 percent, then the real interest rate is

Accepted Answer

A)  7 percent. 
B)  4 percent. 
C)  3 percent. 
D)  10 percent. 
A)  7 percent. 
B)  4 percent. 
C)  3 percent. 
D)  10 percent.

Question 11

When the government's budget deficit increases

Accepted Answer

A)  the government is borrowing less and public savings falls. 
B)  the government is borrowing less and public savings increases. 
C)  the government is borrowing more and public savings falls. 
D)  the government is borrowing more and public savings increases. 
A)  the government is borrowing less and public savings falls. 
B)  the government is borrowing less and public savings increases. 
C)  the government is borrowing more and public savings falls. 
D)  the government is borrowing more and public savings increases.

Question 12

Suppose a country has only a sales tax. Now suppose it replaces the sales tax with an income tax that includes a tax on interest income. This would make equilibrium

Accepted Answer

A)  interest rates and the equilibrium quantity of loanable funds rise. 
B)  interest rates rise and the equilibrium quantity of loanable funds fall. 
C)  interest rates fall and the equilibrium quantity of loanable funds rise. 
D)  interest rates and the equilibrium quantity of loanable funds fall. 
A)  interest rates and the equilibrium quantity of loanable funds rise. 
B)  interest rates rise and the equilibrium quantity of loanable funds fall. 
C)  interest rates fall and the equilibrium quantity of loanable funds rise. 
D)  interest rates and the equilibrium quantity of loanable funds fall.

Question 13

What is a bond buyer promised when she buys a bond?

Accepted Answer

The answer of What is a bond buyer promised when...

Question 14

When a country saves a larger portion of its GDP than it did before, it will have

Accepted Answer

A)  more capital and higher productivity. 
B)  more capital and lower productivity. 
C)  less capital and higher productivity. 
D)  less capital and lower productivity. 
A)  more capital and higher productivity. 
B)  more capital and lower productivity. 
C)  less capital and higher productivity. 
D)  less capital and lower productivity.

Question 15

Which of the following could explain an increase in the equilibrium interest rate and a decrease in the equilibrium quantity of loanable funds?

Accepted Answer

A)  The demand for loanable funds shifted right. 
B)  The demand for loanable funds shifted left. 
C)  The supply of loanable funds shifted right. 
D)  The supply of loanable funds shifted left. 
A)  The demand for loanable funds shifted right. 
B)  The demand for loanable funds shifted left. 
C)  The supply of loanable funds shifted right. 
D)  The supply of loanable funds shifted left.

Question 16

Other things the same, a government budget deficit

Accepted Answer

A)  reduces public saving, but not national saving. 
B)  reduces national saving, but not public saving. 
C)  reduces both public and national saving. 
D)  reduces neither public saving nor national saving. 
A)  reduces public saving, but not national saving. 
B)  reduces national saving, but not public saving. 
C)  reduces both public and national saving. 
D)  reduces neither public saving nor national saving.

Question 17

Other things being constant, when a firm sells new shares of stock, the

Accepted Answer

A)  supply of the stock increases and the price decreases. 
B)  supply of the stock decreases and the price increases. 
C)  demand for the stock increases and the price increases. 
D)  demand for the stock decreases and the price decreases. 
A)  supply of the stock increases and the price decreases. 
B)  supply of the stock decreases and the price increases. 
C)  demand for the stock increases and the price increases. 
D)  demand for the stock decreases and the price decreases.

Question 18

A bond that never matures is known as a

Accepted Answer

A)  perpetuity. 
B)  an intermediary bond. 
C)  an indexed bond. 
D)  a junk bond. 
A)  perpetuity. 
B)  an intermediary bond. 
C)  an indexed bond. 
D)  a junk bond.

Question 19

If there is a shortage in the market for loanable funds, what happens to desired saving and desired investment as the interest rate moves to its equilibrium value?

Accepted Answer

A)  desired saving and desired investment both fall 
B)  desired saving and desired investment both rise 
C)  desired saving falls and desired investment rises 
D)  desired saving rises and desired investment falls 
A)  desired saving and desired investment both fall 
B)  desired saving and desired investment both rise 
C)  desired saving falls and desired investment rises 
D)  desired saving rises and desired investment falls

Question 20

When public saving falls by $2b and private saving falls by $1b in a closed economy,

Accepted Answer

A)  investment falls by $1b. 
B)  investment falls by $3b. 
C)  investment increases by $1b. 
D)  investment falls by $2b. 
A)  investment falls by $1b. 
B)  investment falls by $3b. 
C)  investment increases by $1b. 
D)  investment falls by $2b.

Exam 18: Saving, Investment, and the Financial System

Bond A and Bond B have identical characteristics except that Bond A has a higher interest rate. Which bond has a higher credit risk?

National saving is equal to Y - T - C.

If the inflation rate is 2 percent and the real interest rate is 7 percent, then the nominal interest rate is

A decrease in the budget deficit

People who buy newly issued stock in a corporation such as Crate and Barrel provide

If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded,

Fortunade Corporation stock has a price of $100 per share, a dividend of $1.60 per share, and retained earnings of $2.00 per share. The dividend yield on this stock is

Scenario 26-2. Assume the following information for an imaginary, closed economy. GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion. -Refer to Scenario 26-2. For this economy, national saving is equal to

If the nominal interest rate is 7 percent and the rate of inflation is 3 percent, then the real interest rate is

When the government's budget deficit increases

Suppose a country has only a sales tax. Now suppose it replaces the sales tax with an income tax that includes a tax on interest income. This would make equilibrium

What is a bond buyer promised when she buys a bond?

When a country saves a larger portion of its GDP than it did before, it will have

Which of the following could explain an increase in the equilibrium interest rate and a decrease in the equilibrium quantity of loanable funds?

Other things the same, a government budget deficit

Other things being constant, when a firm sells new shares of stock, the

A bond that never matures is known as a

If there is a shortage in the market for loanable funds, what happens to desired saving and desired investment as the interest rate moves to its equilibrium value?

When public saving falls by $2b and private saving falls by $1b in a closed economy,

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Costs of Production

Firms in Competitive Markets

Monopoly

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

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